Singapore economy grows less than expected in first quarter, as Iran war darkens outlook

SINGAPORE – The Iran war threatens to stall Singapore’s growth momentum, with the Republic bracing itself for higher import costs and supply disruptions that are tempering earlier expectations for what could have been a promising year.

On April 14, advance gross domestic product (GDP) estimates released by the Ministry of Trade and Industry (MTI) came in weaker than expected.

The data showed that Singapore’s economic growth moderated to 4.6 per cent year on year in the first quarter of 2026, from 5.7 per cent in the last quarter of 2025.

Bloomberg’s consensus estimate was about 5.8 per cent growth for the first quarter of 2026.

On a quarter-on-quarter seasonally adjusted basis, the economy contracted by 0.3 per cent, a reversal from the 1.3 per cent expansion in the fourth quarter of 2025.

“While GDP growth remained resilient in the first quarter of 2026, the US-Israel-Iran conflict that began in end-February may weigh on economic activity in the coming quarters,” MTI said in a press statement.

In a separate statement on April 14, the Monetary Authority of Singapore (MAS) said “GDP growth in 2026 as a whole is likely to step down from the above-trend pace of growth recorded in 2025” due to the Iran war, and that an update to the earlier forecast will be provided in May.

Before the Iran war broke out, MTI had upgraded Singapore’s 2026 GDP growth forecast to a range of 2 per cent to 4 per cent, citing strong growth momentum and robust artificial intelligence-related demand.

But since the outbreak of war, crude oil prices have surged, and supply chains have tightened with the closure of the Strait of Hormuz – through which 20 per cent of the world’s oil consumption passes – dampening the outlook for trade-dependent economies across Asia.

MTI’s advance estimate suggests that momentum has already started to soften, Ms Sheana Yue, senior economist of macroeconomic and investor services at Oxford Economics, told The Straits Times.

She highlighted that the advance estimates reflected activity in January and February and did not fully capture the extent of the slowdown seen in March.

It is subject to revision when more comprehensive data becomes available. In particular, the US-Israel-Iran conflict that began on Feb 28 could start to weigh on economic activity in March.

“Based on the incoming data and softer momentum into March, we expect our first-quarter GDP estimate to be revised downwards,” Ms Yue said.

At this stage, the weakness appears more pronounced than initially anticipated, pointing to a sharper moderation in activity at the start of the year, she added.

For the full-year 2026 outlook, she anticipates growth could be threatened by higher energy costs, weaker external demand, and ongoing supply-side disruptions. 

Ms Yue is not revising her 2026 GDP forecast at this point despite the higher risks, but expects economic momentum to remain soft through the middle of the year.

UOB associate economist Jester Koh downgraded his full-year 2026 GDP growth forecast for Singapore to 2.5 per cent from 3.6 per cent previously.

Maybank economists Chua Hak Bin and Brian Lee kept their GDP growth forecast for the full year 2026 at 3.4 per cent, down from the 5 per cent growth seen in 2025. 

This implies an average growth of around 3 per cent for the second to fourth quarters of this year, the economists said.

Energy-dependent industries, including petrochemicals, aviation, land transport and marine shipping, will be most affected by higher energy costs and supply disruptions, they said.

Sectors that will likely continue to do well include electronics manufacturing, construction, financials and storage, they added.

Mr Barnabas Gan, RHB’s group chief economist and head of market research, kept his GDP growth forecast at 3 per cent for 2026, while acknowledging downside risks towards 2.5 per cent.

If geopolitical tensions persist into the second half of 2026, he reckoned growth could weaken further to a range of 1 per cent to 1.5 per cent under a more adverse scenario.

Despite these downside risks, Singapore’s economy remained resilient in the first quarter of 2026, with growth driven by manufacturing and trade-related services.

Manufacturing grew by 5 per cent, cooling from an 11.4 per cent expansion in the fourth quarter.

Growth was driven by output expansions in the electronics, transport engineering and precision engineering clusters, which more than offset output declines in the biomedical manufacturing, general manufacturing and chemicals clusters.

The wholesale and retail trade, as well as transportation and storage cluster, grew 6.7 per cent in the first quarter, driven by machinery, equipment and supplies, as well as storage and other support services.

The construction sector expanded by a standout 9 per cent, accelerating from the 4.6 per cent growth in the fourth quarter. Growth was supported by both public- and private-sector construction works.

The information and communications sector was bolstered by continued strong demand for information technology and digital solutions, while growth in the professional services sector was supported by head offices and business representative offices, and accounting segments.

The finance and insurance sector expanded on the strong performance of the banking and insurance segments.

Singapore’s real estate sector grew on the back of steady growth in developer activities, while growth of the other services industries, such as health and social services and education, remained resilient, MTI said.

The preliminary GDP estimates for the first quarter – including performance by sectors, sources of growth, inflation, employment and productivity – will be released in the Economic Survey of Singapore in May.

On April 7, Deputy Prime Minister Gan Kim Yong said Singapore’s economic growth in the coming quarters is likely to be affected by the ongoing Middle East conflict, and inflation is expected to be higher than earlier estimated.

Mr Gan, who also heads MTI, told Parliament that the impact of supply disruptions, alongside higher prices of energy and raw materials, will filter through the economy and push up business and transport costs as well as consumer prices. This will, in turn, dampen demand and slow growth.

The impact on various sectors will vary, but manufacturing industries that rely on natural gas and on crude oil and its derivatives as feedstock will be most directly affected, he said.

MTI will continue to monitor economic developments closely, added Mr Gan.